McDonald’s collapsed, can Chinese burgers take over?

Explore the McDonald's food safety incident, analyze whether Chinese local hamburger brands can take advantage of it, and answer consumers' doubts about the fast food trust crisis. Recommended for readers who are interested in fast food industry trends and brand trust building.

"Tustin can't become Luckin Coffee." Something happened to McDonald's.

On May 13, according to the Beijing News, the reporter went undercover at McDonald's Zhengzhou Excellence Nonglian Restaurant and McDonald's Jinan University Restaurant and found that both restaurants had serious food safety management problems. The common violations of the two stores included tampering with food expiration date labels, using expired ingredients, selling food after the expiration date, and cutting corners. In addition, McDonald's Zhengzhou Excellence Nonglian Restaurant also had frying oil quality exceeding the standard.

On the evening of May 13, McDonald's China released a statement on its official website regarding the incident, saying, "We are grateful for the media's supervision and reporting. We are actively cooperating with local market supervision departments to investigate and verify. We will not tolerate any violation of operating standards and will deal with it seriously. We deeply apologize for the impact on the restaurant involved. We have an obligation to further strengthen the implementation and execution of restaurant operating standards and insist on conveying correct values ​​to every restaurant and every employee."

Image source: McDonald's China official website

However, this seemingly innocuous statement did not convince netizens. "McDonald's, you broke my heart." "No more McDormand." McDonald's food safety issues continued to ferment at the fastest speed on the Internet, and a crisis of trust was imminent.

1. Is being acquired an original sin?

“McDonald’s is safe, but McDonald’s China may not be safe.”

After the food safety incident was exposed, most netizens pointed the finger at McDonald's China's management. This accusation can be traced back to the acquisition of McDonald's China by Chinese capital seven years ago.

In August 2017, CITIC Limited, CITIC Capital and Carlyle Group jointly acquired 80% of McDonald's China's shares. With the entry of Chinese capital, netizens joked that McDonald's has since become half state-owned enterprise. However, is being acquired really the original sin?

Before McDonald's was acquired by Chinese capital, its development speed in China was far slower than that of KFC. However, from a global perspective, KFC has only 1/3 of McDonald's stores and 1/5 of its turnover. Why did it make a 180-degree turn in China? Essentially, it is because KFC localized in China early on.

KFC entered the Chinese market three years earlier than McDonald's, and its franchise policy launched in 1993 was 10 years ahead of McDonald's. In 1998, KFC also issued a new franchise policy of "not starting from scratch", which allows an existing store to be transferred to a franchisee as a whole, thus more effectively promoting store turnover and maximizing the effectiveness of manpower and material resources.

In addition to business strategies, KFC's product development is becoming more Chinese. The Old Beijing Chicken Roll, invented in 2003, became a hit as soon as it debuted and is still on the daily menu of "Feng Si Literature". Preserved egg and lean meat porridge, fried dough sticks, soy milk, these items that have nothing to do with Western food also appear in KFC's breakfast. In fact, such breakfast is indeed very popular in the Chinese market.

McDonald's, on the other hand, seems to be wavering between maintaining its internationalization and transforming to localization. It has been slow to open up franchises, its menu is not rich enough, and its marketing investment is not enough. McDonald's, which beats KFC in the international market, has been unable to adapt to the Chinese market for a long time. According to third-party statistics, McDonald's' share of the domestic chain restaurant market in 2016 was less than 6%, far behind KFC.

The turning point happened after McDonald's was acquired in 2017.

In that year, McDonald's China was renamed Golden Arches (China) Co., Ltd., announcing the official start of McDonald's localization development 27 years after entering China.

As of May 15, 2024, there are 6,743 McDonald's restaurants nationwide, and 10,799 KFC restaurants nationwide during the same period. Although McDonald's still has only about two-thirds of KFC in terms of the number of restaurants, the gap between the two has narrowed a lot compared to 2017.

In terms of restaurant layout, McDonald's has also followed KFC's lead in exploring the lower-tier markets. Currently, about 50% of McDonald's stores are located in third- and fourth-tier cities. In terms of supply chain, 90% of McDonald's ingredients are purchased and produced domestically.

Before CITIC Capital entered the market, McDonald's was not used to the domestic digital ecosystem. In contrast, domestic catering companies have long been accustomed to the online model, and McDonald's has fallen behind. With the help of CITIC Capital, McDonald's has started digital construction at a rapid pace. CITIC Capital hired Tencent to develop mini-programs, opened up online food delivery services, and created a nationwide private domain membership system.

In November 2023, PE giant Carlyle completely withdrew from its investment in McDonald's China after transferring its 28% stake to McDonald's. After the transaction was completed, McDonald's Global's shareholding in McDonald's China increased from 20% to 48%, and McDonald's China's shareholders were simultaneously changed to CITIC Capital (52%) and McDonald's Global (48%), with CITIC Capital continuing to maintain a controlling position.

Objectively speaking, whether it is acquisition or localization, McDonald's China has obvious advantages over disadvantages. It is obviously unfair to infer that it is "guilty" based on only one food safety incident.

2. Is McDonald’s really not clean?

During the undercover operation, the Beijing News reporter found that at the two McDonald's stores involved, from the restaurant manager to the ordinary kitchen staff, all the restaurant staff had formed a tacit understanding of illegal operations. "Whenever they encounter the expiration of ingredients, they almost always choose to tamper with the expiration date instead of discarding the ingredients."

How long has this situation lasted? We don't know. How many stores have this situation? We don't dare to think too much.

In March 2022, employees of a McDonald's store in Nanjing reported that meat ingredients in the store were still provided to customers after they expired. In 2021, similar situations also occurred from time to time. Can we understand that what was exposed by the media is just the tip of the iceberg? In many McDonald's stores, food safety issues have long become commonplace and a normal operation? Netizens can't help but think about it.

If McDonald's China really wants to take tough measures to address food safety issues, it must revise its KPI assessment mechanism, make food safety a key sub-item of the assessment, and supervise it through real-time monitoring, irregular on-site and remote inspections, etc.

Objectively speaking, both McDonald's and KFC have experienced food safety issues. Compared with their peers, McDonald's and KFC's management level and quality control are already first-class in the industry. According to the visit of the reporter of "21st Century Business Herald" to the Beijing store, the store has three rounds of food safety inspections every day. The store staff all emphasized that this frequency of safety inspections is a normal situation, and there is no use of expired ingredients. There is even a shortage of raw materials on Fridays and weekends.

Judging from the number of their respective stores, the frequency of food safety issues is also quite low . However, we need to recognize the reality that as the undisputed leader of international Western fast food, consumers will naturally have higher requirements for both, and the tolerance rate will be given to the lowest value in the industry accordingly.

It is undeniable that the food safety issue has fermented rapidly under the catalysis of the Internet. Under the network effect, even small problems may be infinitely magnified, let alone such a red line issue as food safety.

Consumers are gradually realizing that even if you are a big company in the catering industry, you may not be reliable. But if the big company's signboard is no longer trustworthy, why should I pay you an "unworthy" brand premium?

Perhaps other restaurant brands are not as good as McDonald's in terms of food safety and product stability, but if McDonald's fails to nip in the bud on food safety issues, when such incidents happen again, even the thickest wall of trust may collapse.

3. Tustin is not Luckin

Maimon may not be as solid as before, so can Chinese hamburgers take advantage of this crisis of trust to snatch the spoils?

For now, there is no possibility.

First, let’s define the Chinese burger.

In fact, it is better to call it "Chinese-made hamburger" rather than "Chinese-style hamburger". There is no essential difference between Chinese-style hamburger and Western-style hamburger, except for the slight difference in bread, patty, seasoning, etc.

When foreign giants have already localized, they will also focus on developing hamburgers that are "more suitable for Chinese babies' physique." In other words, even if you are a Chinese brand, even if you call yourself a "Chinese hamburger," it does not necessarily mean that you have an advantage over foreigners in product development.

Next, let’s look at the food safety issue that McDonald’s has been criticized for.

In fact, the number of food safety issues encountered by Tustin is far greater than that of McDonald's that was exposed this time. There are many people on Xiaohongshu who complained about eating rotten meat and getting stomachaches at Tustin. There are even outrageous news reports from time to time about consumers ordering takeout and eating raw chicken directly.

According to various information surveys, Tustin currently does not have its own supply chain. In other words, Tustin's raw materials all rely on suppliers for "supply". As such, its stability can be imagined.

Finally, let's talk about the most basic business war - price. Tustin is known as the "McKinsey replacement", so is it really cheap?

In Tustin, a spicy chicken burger is only 8.9 yuan after discount, and a three-piece deluxe meal for one person is only 19.8 yuan. However, in the current trend of low prices, McCain is also becoming more and more cheap. Tustin has a price advantage, but it is not significant.

Tustin daily prices, source: Tustin mini program

Judging from the Douyin group buying prices in Beijing, McDonald's three-piece spicy chicken burger set is about 25.9 yuan; KFC's three-piece set is about 19.9 yuan; and the cheaper Wallace's four-piece crispy chicken burger set is only 15.9 yuan. Overall, such a price difference seems to be insufficient for consumers, and there is no need for consumers to risk potential health risks to save a few dollars.

Why is it that Luckin Coffee can surpass Starbucks in terms of revenue in the Chinese market, while Tustin seems to have so many difficulties? This is mainly related to product features and competitors.

From the perspective of product characteristics, although Western fast food is highly standardized, it undoubtedly involves more raw materials than coffee, which only requires a supply chain combination of "coffee beans + milk". In the production process of the store, although all dishes are pre-prepared, there are still steps such as washing, frying, and heating, which is why raw meat appears.

From the perspective of competitors, when Luckin Coffee started the 9.9 yuan price war, Starbucks' single product price was still around 30 yuan, and Luckin Coffee's price was obviously very tempting. However, looking at the pricing of McCain, the gap between it and Tustin is not "huge". In addition, after McCain discovered the expansion trend of hamburgers in China, it quickly followed up with price wars with activities such as Crazy Thursday and Hi Monday, which made the price difference between brands even smaller. Naturally, the effect of Tustin's price war cannot be compared with that of Luckin Coffee.

Tustin can’t copy Luckin’s homework.

Recently, the number of Tustin's signed stores nationwide has exceeded 7,000. In October last year, the number of Tustin's stores was still 5,400. In the process of rapid expansion, companies will inevitably face the outbreak of negative problems, whether it is Western-style hamburgers or Chinese-style hamburgers.

Food safety is essentially a matter of probability, and no company dares to say that it can withstand 100% of the test. But the probability of your problem breaking out determines how much trust consumers have in you.

For Tustin, building a complete supply chain as soon as possible is the cornerstone of healthy expansion in the future. Otherwise, catching up with McDonald's will still be out of reach.

Author: Koala is a Deer; Editor: Ge Weiwei; Source public account: New Retail Business Review (ID: 1089053)